"Mr. Letta's resignation brings an end to a government that is barely 10 months old and has teetered on the brink of collapse virtually from its birth. It will clear the way for [President Giorgio] Napolitano to ask Matteo Renzi to try to form a new government."

Renzi, 39, is described by the Journal as "a rising star of Italian politics [who] pulled his support for the government earlier Thursday after months of criticizing the premier for failing to act aggressively enough to combat Italy's protracted economic downturn."

"Renzi, the mayor of Florence who recently won a nationwide primary to become leader of the Democratic Party, has a reputation for boldness and has long been considered Italy's most promising young politician. He has spoken repeatedly about the need for sweeping political and economic changes. But few analysts foresaw that he would lead a revolt against his party's sitting prime minister."

In July, Letta managed to persuade the European Union to allow the country to depart from its strict austerity and begin stimulating growth and promoting jobs. But that has, so far, done little to alleviate the country's deepest and most protracted post-war recession, which has been exacerbated by high public debt, low consumer spending and uncompetitive exports.

As recently as Wednesday after a face-to-face meeting with Renzi, Letta, 47, had vowed to hang on, saying "you don't step down because of gossip, because of power plays and behind the scene activities."

"Italy's latest political upheaval would have sent shockwaves through the eurozone during the sovereign debt crisis of 2011. But in a sign that confidence is returning to the bloc, markets remained relatively sanguine on Thursday about the prospect of the single-currency's third-largest economy coming under the command of a relative political novice, with [2 trillion euros] of public debt and youth unemployment at record highs."